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BRICS: An Instrument for Addressing the Global Economic Crisis

By Alexander Nechaev

PRETORIA, South Africa, March 20, 2013 (ITAR-TASS) - On the eve of the Fifth BRICS Summit due in Durban on March 26–27 South African Minister of International Relations and Cooperation Maite Nkoana-Mashabane gave the interview for ITAR-TASS news agency.

Q:After South Africa joined the group of rapidly developing economies in 2010 BRICS expanded to Africa and included countries from practically all continents. Do you believe the group can develop into a global player and a development engine given the economic crisis in Europe?

A:The fast-growing emerging economies of BRICS have a vital role to address the global economic crisis, thus equalling their status with traditional powers. In the midst of the current global economic crisis, many countries in the world are looking to BRICS members for a way out.

BRICS has the capacity and the political will to engage with the global community and contribute in a meaningful manner to achieve global well-being, stability and growth. BRICS countries coordinate their positions and actions in international organisations as seen in the United Nations Security Council.

BRICS countries have individually emerged to challenge traditional economic powerhouses. China has recently been ranked as the second-biggest economy in the world, overtaking many economies.

Q:You said BRICS leaders will discuss currency swaps to facilitate trade. Is it the first step towards the creation of a BRICS Development Bank?

A:There are currently two key finance initiatives aimed at promoting intra-BRICS co-operation, i.e. i) the Framework Agreement on Financial Cooperation, signed between five development banks from the BRICS countries; and ii) the Contingent Reserve Pooling Arrangements and Bilateral Swaps.

At the Fourth BRICS Summit two further financial agreements were signed which had two components, i.e. i) the Master Agreement on Local Currency Credit Facilities (MALCCF) and ii) the Multilateral Letter of Credit Confirmation Facility (LCC).

The aim of the agreement is to strengthen and develop trade and economic relations among the financial institutions and enterprises of the BRICS Member Countries by reducing exchange risk arising from cross border trade by extending credit to each other in local currencies. The Mechanism would enable the five countries to reduce dependence on the US dollar, cut trading costs, increase trade and investment flows and push forward internationalisation of their currencies.

Q:The idea to set up the BRICS Development Bank originated also because of slow reform of the International Monetary Fund and the World Bank. Do you believe the Bank, if created, should rival or complement international financial institutions?

A:Commentators have suggested that in the post-Washington Consensus era, financial institutions such as the IMF and the World Bank are struggling to articulate a coherent development discourse; BRICS nations are at a stage where they can collectively craft a viable alternative development agenda.

In the margins of the G20 Ministerial in 2011, Nicolas Stern and Joseph Stiglitz presented a paper on how to fund infrastructure development through utilising savings generated by emerging markets and developing countries (EMDCs) through “an International Development Bank for Fostering South-South Investment.”

The first rationale is that the Bank would help mobilise resources from within EMDCs by using these countries’ savings to fund infrastructure development in EMDCs.

The second rationale for establishing the Bank is that in order for BRICS to begin having an impact on the international financial system, it needs to create an innovative platform for co-operation between EMDCs.

Following the 4th BRICS Summit in New Delhi which was held on 29 March 2012, BRICS leaders said: “We have considered the possibility of setting up a new Development Bank for mobilizing resources for infrastructure and sustainable development projects in BRICS and other emerging economies and developing countries, to supplement the existing efforts of multilateral and regional financial institutions for global growth and development. We direct our Finance Ministers to examine the feasibility and viability of such an initiative, set up a joint working group for further study, and report back to us by the next Summit.”

After the Summit, it was agreed that India (as incumbent chair) and South Africa (as incoming chair) would co-chair the Joint Working Group (JWG) that would prepare this study. South Africa hosted the JWG in January 2013 and finalised the draft reports that BRICS Finance Ministers will consider prior to the Fifth BRICS Summit with a view to presenting these reports to the BRICS Leaders.

Q:South Africa is for the first time organizing a meeting of BRICS leaders with captains of economy. The creation of the Business Council is envisaged. How will it promote trade within the group?

A:BRICS Business Council, to serve as a platform for promoting trade and investment between Brazil, Russia, India, China and South Africa, will be launched at the 5th BRICS Summit in Durban. The Council will be made up of five business representatives from each BRICS member country, and will promote business-to-business cooperation as well as provide advice and technical support for multilateral business projects.

The Council would also set up sector working groups, and submit an annual report to the five BRICS leaders during the annual BRICS summit. Trade and Industry Minister Rob Davies said that South Africa's nominated representatives on the Council would be African Rainbow Minerals executive chairman Patrice Motsepe, Business Unity SA CEO Nomaxabiso Majokweni, Zungu Investment executive chairman Sandile Zungu, Sekunjalo group chairman Iqbal Surve, and Transnet CEO Brian Molefe, with Aspen Pharmacare CEO Stavros Nicolau serving as an alternate.

Q:South Africa is organizing a meeting of BRICS leaders with heads of African economic communities and the AU? Will it discuss conflict settlement on the continent or focus on infrastructure development and economic cooperation, or both?

A:President Jacob Zuma will host the Fifth BRICS Summit on 27 March 2013, in Durban, Kwazulu Natal, South Africa, on the theme: “BRICS and Africa: Partnership for Development, Integration and Industrialisation”. This will be the first BRICS Summit on African soil, providing an opportune moment for the BRICS countries to further their engagement and cooperation with Emerging Markets and Developing Countries, as envisioned in the Sanya Declaration, adopted at the Third BRICS Summit in 2010.

Specifically, the Sanya Declaration expressed the willingness of the BRICS countries to support the advancement of the African Agenda, particularly in terms of infrastructureСохранить development in Africa and its industrialisation within the framework of the African Union’s (AU) New Partnership for Africa's Development (NEPAD).

The Retreat will be held on 27 March 2013, from 15:30–17:30, at the Fairmont-Zimbali Resort, in Durban, KwaZulu-Natal, South Africa. The Retreat will be held under the theme, “Unlocking Africa’s potential: BRICS and Africa Cooperation on Infrastructure”. Invited participants include: the BRICS Heads of State and Government; the Chairperson of the African Union; the Chairperson of the African Union Commission; the Chairperson of the NEPAD Heads of State and Government Orientation Committee (HSGOC); the Heads of State and Government Chairing the AU’s Eight Regional Economic Communities (RECs) and; the Heads of State and Government Championing the AU/NEPAD Presidential Infrastructure Championing Initiative (PICI). In addition, the Executive Secretaries of the Eight RECS, and the CEO of the NEPAD Planning and Coordinating Agency (NPCA) have also been invited. The Retreatwill reflect primarily on infrastructure development, as well as integration and industrialisation, which are aligned to Africa’s own priorities, for the mutual benefit of the BRICS countries and the Continent.

The overall objective of the Retreat is to offer an opportunity for BRICS and African Leaders to engage on measures to strengthen cooperation between the BRICS countries and the African Continent, to unlock its potential and promote regional integration through infrastructure development and industrialisation.

Q:The creation of an Academic Forum and a Think tank is planned. Will they research general political and economic situation in the world or be limited to the BRICS sphere of interests?

A:Minister of Higher Education and Training Blade Nzimande has joined the BRICS Inter-Ministerial Committee (IMC) and anchored the BRICS Academic Forum and Consortium of Think Tanks. A preparatory workshop of BRICS Consortium of Think Tanks was held on 8–9 March 2013 prior to Academic Forum to finalise concept paper/terms of reference/MoU.

As you know, the two-day BRICS Academic Forum was held on 10–13 March 2013 and culminated in the signing of the Declaration on the Establishment of the BRICS Think Tanks Council. The objective of the Think Tanks Council would be to conduct policy analysis to inform the long-term strategy of BRICS and create a forum to facilitate discussion among academics, policy makers and non-governmental organisations interested in the BRICS developmental strategy.

At the Academic Forum, academics from the BRICS countries considered issues expected to be discussed in the Summit, such as the creation of a development bank and economic issues. Other issues discussed were reform of global governance institutions; cooperation on Africa; education, research and skills development for building industrial economies; and peace and security.

Q:The positions of South Africa and Russia coincide on many international issues, including conflicts in Syria and the Middle East. However trade between the countries still has a major unused potential. Which industries would South Africa list for expanded cooperation with Russia besides mining?

According to The Presidency, Russia has expressed interest in cooperating with South Africa in the construction of nuclear power plants. Russia is one of South Africa’s main wine export markets. Russia was South Africa’s 6th most important importer of bulk wine and 18th largest importer of South African packaged wine. South Africa wants to cooperate with Russia in engineering, especially with the training of South Africans in Russia.

At the beginning of 2012, Condra, which is a hoisting equipment company, secured a R13 Million contract from Russia to deliver one of the biggest cranes ordered from the South African-based crane group to date. The maintenance crane will be installed at a power generation plant in Russia’s Ural Mountains.

In 2012, South Africa’s National Nuclear Regulator signed a cooperation agreement with Russian regulator Rostechnadzor. The agreement covers radiation and nuclear safety and security. In September 2012, state arms company Denel and manufacturer Russian Helicopters signed an agreement that will result in the two creating a servicing hub for Africa.

In November 2012, South African industrial firm Barloworld said it would pay $50 million for Caterpillar’s Bucyrus distribution. Caterpillar, the world’s largest maker of mining equipment, last year acquired Bucyrus for $7, 6 billion. From December 2012, Vostochnaya Technica LLC, the Barloworld Russian dealer, will provide sales, service and support for all of the former Bucyrus mining products in its service territories within Russia.

Although only about 15% of Russia’s 142-million population have ever travelled abroad, it still represents quite a significant number at over 21 million travellers. Many of those who have already travelled are looking for new and more exotic destinations. South Africa therefore becomes more attractive as a tourist destination for Russians. (ITAR-TASS, Pretoria)